Robbing South to pay North

Robbing South to pay North

Hindu-Muslim divide, Dalit-upper caste battles, anti-Hindi imposition struggle, as if these were not enough, a new mother-of-all-battles that can tear asunder the Indian union is brewing. A putative north-south divide. And it's over money how much of the nation's tax revenues are given to each state and on what basis.

Given that ours is a federal system, the Constitution mandated the creation of a Finance Commission to determine how much of the taxes collected should be devolved from the Centre to the states, and how much, and based on what criteria, each state should get out of the total pie. Fourteen Finance Commissions have done the job so far. In November, the Narendra Modi government constituted the Fifteenth Finance Commission, to be headed by former bureaucrat and BJP Rajya Sabha member NK Singh. The Commission is to make its report in October 2019, and its recommendations are for the period from April 2020 to March 2025.

It is with regard to the terms of reference (ToR) that the Centre has given the Commission that there is growing disquiet, especially among the southern states of Karnataka, Telangana, Andhra Pradesh, Kerala and Tamil Nadu.

Terms of Reference

The Centre has mandated the 15th Finance Commission to use population data from the 2011 Census, and that, among other terms set for it, is what has raised protests from the southern states.

A state's population is naturally a key element for the devolution of finances from the Centre but given that India's population growth has been uneven among the states, it is also a problem. While Finance Commissions between 1951 and 1975 used the latest Census data they had available, in 1976, the Indira Gandhi regime got passed the 42nd Amendment to the Constitution, which mandated that the 1971 Census data should be used in all matters that required population size to be taken into account. This included determining the number of seats in Parliament, which has been frozen at a maximum of 550, and in the state assemblies; the electoral college for the election of the President; and the population data to be used by successive Finance Commissions.

The reason was that the 1971 Census showed a dramatic rise in population and drastic population control measures were introduced in its wake. As such, states were to be encouraged to take effective measures to control population growth. To do so, it was necessary to assure them that they would not lose out on devolution of taxes from the Centre if they reined in population growth; similarly, they would also have a fixed number of MPs in Parliament, based on the 1971 figures, and their representation would not come down with population numbers.

While the 42nd Amendment froze the 1971 Census figures as the reference measure until 2001, it was extended up to 2026 by the Atal Bihari Vajpayee government. It was a tremendous compromise and consensus arrived at, even in the midst of the Emergency, to maintain the federal political structure and fiscal architecture.

Until the 13th Finance Commission, it was only the 1971 Census data that was used. The 14th Finance Commission broke with that to allow a 10% weightage to the 2011 Census data within the overall 27.5% weightage given to population size. The southern states felt the impact immediately: Tamil Nadu, for instance, lost Rs 6,000 crore from its share of the taxes, a 19% reduction from what it got under the 13th Finance Commission, thanks to just a 10% weightage to 2011 Census data.

The reason is not far to seek: between 1971 and 2011, the southern states have succeeded in reining in population growth, compared to the Hindi belt states. Kerala's population rose by 56%, Tamil Nadu's by 75%. In comparison, Uttar Pradesh's population rose by more than 130%. In achieving population growth control, the southern states have gone aggressive on improving female literacy, reproductive health and a number of other social indicators. In effect, they have governed their states better and improved their human development indices. At the same time, they have also become economic growth engines of the country. The Hindi belt states, on the other hand, have been unable to show good governance or get on the path to economic growth.

In these circumstances, if the 15th Finance Commission is to go by the 2011 Census, it would in effect be punishing the southern states for better governance and human and economic development, while encouraging the profligacy and bad governance of the northern states.

What would be the impact? Writing in the Economic and Political Weekly, V Bhaskar, former special chief secretary (finance) to the government of Andhra Pradesh and joint secretary, 13th Finance Commission, estimated last month that while the BJP-ruled states of Uttar Pradesh, Bihar, Rajasthan and Madhya Pradesh would gain Rs 35,167 crore, Bihar Rs 32,044 crore, Rs 25,468 crore and Rs 14,735 crore respectively, the southern states of Andhra Pradesh, Tamil Nadu, Kerala and Karnataka would lose Rs 24,340 crore, Rs 22,497 crore, Rs 20,285 crore and Rs 8,873 crore respectively!

And, if today the Centre imposes 2011 Census data on the Finance Commission, what is the guarantee that in 2026, it would not do the same for political delimitation, in which case, the northern states will begin to dominate the southern states with their numbers in Parliament and a largely cow-belt party like the BJP would be forced to divert all resources to them to keep itself in power. Should the southern states accept this?

The South strikes back

Not surprisingly, therefore, Karnataka Chief Minister Siddarmaiah has called for a united fight by the southern states against what's now increasingly seen as the Narendra Modi government's bid to take away resources from these states and hand them over to states that are BJP strongholds. Andhra Pradesh Chief Minister Chandrababu Naidu, who has already parted ways with the BJP-led NDA over the issue of granting of 'special category' status for his state, has called the ToR of the 15th Finance Commission a "betrayal" of the southern states and an attempt by the BJP to rob them further the southern states already contribute more to the central tax kitty, about 30% of it, than they get back to enrich the Hindi belt states. DMK chief MK Stalin has written to Prime Minister Modi and the chief ministers of 10 non-BJP-ruled states in protest against the Commission's ToR. Kerala has called a meeting of southern finance ministers on April 10 to coordinate positions.

The united southern pushback has rattled the BJP enough that its new pointsman for all seasons and reasons, party general secretary Ram Madhav went into a huddle with Commission chairman NK Singh over the issue.

The Commission itself has come out and said that it will hold consultations with all states before finalising its report. The question is, why couldn't the Centre have had a round of consultations with the states before setting the terms of reference. After all, when the Centre talks of 'cooperative federalism', shouldn't it live by it?

DH News Service


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